Moody's rating agency places UK on negative outlook

 
Pile of one pound coins The change implies a 30% chance the UK's rating will be downgraded in the next 18 months

The UK has been warned its credit rating may be cut in future, potentially increasing borrowing costs.

The statement from the Moody's ratings agency followed concerns about the possible impact of the eurozone crisis on the UK's growth prospects.

It put the UK on "negative outlook", implying a 30% chance of losing its AAA credit rating within 18 months.

France and Austria have also been warned and Italy, Spain and Portugal's ratings have been lowered.

Chancellor George Osborne said the comments from the US agency was not a criticism of his government's economic policy.

"It was a reality check for the whole political system that Britain has to deal with its debts, that we can't waver in the path of dealing with our debts," Mr Osborne told the BBC.

"This is yet another organisation - in this case a credit ratings agency - warning Britain that if we spend or borrow too much we're going to lose our credit rating," he added.

Start Quote

Britain could go through all this austerity and still lose its Triple A, due to a slow or stagnant economy.”

End Quote

However, shadow chancellor Ed Balls said the Moody's statement was a warning to the UK.

"Unless you have growth, if your plan is unbalanced it becomes self-defeating and today is the first evidence that even the ratings agencies are waking up to the fact George Osborne's plan is not working," he told the BBC.

"I have said consistently and in the face of the views at times of ratings agencies, that without growth, without jobs, you can't get the deficit down," he added.

BBC economics editor Stephanie Flanders said there was no suggestion that the agency would prefer the UK government to change its economic policy of austerity.

However, she added the agency's warning means spending cuts may not prevent the UK losing its credit rating - if growth falls.

Crisis jargon buster
Use the dropdown for easy-to-understand explanations of key financial terms:
AAA-rating
The best credit rating that can be given to a borrower's debts, indicating that the risk of borrowing defaulting is minuscule.

In its statement, Moody's said: "Any further abrupt economic or fiscal deterioration would put into question the government's ability to place the debt burden on a downward trajectory by fiscal year 2015-16."

The downgrades had been justified by the "growing financial and macro economic" risks from the eurozone crisis, it said.

'Little impact'

Like personal credit scores, sovereign credit ratings are an indication of how risky it is to lend money to a country.

A high credit rating from the three main agencies, Moody's, Standard & Poor's and Fitch, implies that borrowing to fund public spending will be relatively cheap.

If the rating is lowered this can push up the interest rate on new borrowing for governments.

Analysis

Treasury sources have sought to play down the significance of the ratings agency Moody's decision to place the UK's Triple A rating at risk.

The source said the decision was not "entirely unexpected" given the difficult economic situation facing the UK.

The source said that Moody's made clear any "discretionary fiscal loosening" would make a downgrade more likely and that this underscored the need for the government out stick to its deficit reduction strategy.

However, many analysts believe a fall in the UK's rating would have little effect.

"It's all relative," said Laura Lambie from William de Broe

"We did see America being downgraded, they lost their AAA rating last year and that didn't have a huge detriment, in actual fact it was reasonably positive they are still seen as a safe haven when compared to other countries such as Greece and Spain, and I suspect Britain will be the same." she added.

The UK's "negative outlook" is the lowest level of warning offered by the agency - and can be followed by a "negative watch" implying a more than 50% chance of downgrade.

The agency said the UK faced three main risks to its top rating; slower growth and the possible impact on spending cuts, a sharp rise in borrowing costs due to inflation or a new crisis in the banking sector.

However, the agency noted the UK "continues to be well supported by a large, diversified and highly competitive economy, a particularly flexible labour market, and a banking sector that compares favourably to peers in the euro area".

 

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  • rate this
    +6

    Comment number 278.

    268 sandy winder
    'Good to see the 'lynch the messenger' mob back in full cry. It's good for a laugh anyway.'

    This is because the messenger got it wrong when it so mattered. This is because the messenger isn't helping the situation. I am sorry, but these guys are screwing with our lives (investments and pensions).

    And to be honest, it isn't news. We already know how dire things are!

    Not needed.

  • rate this
    0

    Comment number 277.

    270.Bob Nethers

    Balanced reporting from the BBC..............Now there's a joke.
    http://biased-bbc.blogspot.com/

  • rate this
    +7

    Comment number 276.

    New Labour wre right to bail out the banks, creating 80% of debt at the last election, but they wrong not to have any pennies saved whilst the sun shone.

    The Coalition is right to tackle debt, but wrong to wreck the growth they inherited - growth is a far better way to reduce the deficit than strangling the econmy as they are doing......our rating was not under threat last year.....

  • rate this
    +1

    Comment number 275.

    122.Robert Warstein

    "Arthur Daley, 107. If it's all the Eurozone's fault, explain why the pound has dropped still further against the Euro since the Euro crisis began?"

    Please refer to the attached, with my apology for having the temerity to put a simple truth in the way of your false statement:-

    http://www.bbc.co.uk/news/business/market_data/currency/11/13/twelve_month.stm

  • rate this
    -5

    Comment number 274.

    What did we expect with a debt of over a trillion pounds plus a further trillion of public sector pension needs and such an over generous welfare state. We can't blame governments for everything but Gorden Brown inherited a surplus which he converted to a massive debt and sold much of our gold reserves at rock bottom prices! Poor house keeping or what!

  • rate this
    +2

    Comment number 273.

    256. Sean Penn, clearly doesn't know what he is on about. Perhaps someone should tell him that the UK hasn't been a colonial power for quite some time and that America achieved independence thanks to another colonial power - France. Perhaps California should be handed-over to Mexico, if one wishes to invoke historical land disputes.

  • rate this
    +5

    Comment number 272.

    These are the same ratings agencies who failed to foresee the impending financial crisis, which was caused entirely by credit. Why on earth do they have any credibility left?

    What was Lehman Bros credit rating a month before they imploded? What was Enron's rating two days before they went bust?

    These agencies are a control mechanism for the USA over all other nations, nothing more.

  • rate this
    +1

    Comment number 271.

    Re 37 - Dave Of course you're right - I've made the same comment many times before - but such is the way of modern extreme capitalism.

  • rate this
    -2

    Comment number 270.

    There is clear a growing sense of anger with the BBC's peddling of pro-Europe, pro-borrowing, pro-left wing and pro-debt stance. Can we have some balanced coverage please, not huge graphics with downward arrows on the front page, mealy mouthed "expert commentary" and negative splashed all over the place next the Chancellor's name.

  • rate this
    -2

    Comment number 269.

    @DeputyDave62

    which part of

    "possible impact of the eurozone crisis on the UK's growth prospects"

    do you think relates to our governments policies?

    simple rule when it comes to current thinking... do not be led by the Balls into another round of overspend....


    (PS, that's Ed of course)

  • Comment number 268.

    This comment was removed because the moderators found it broke the house rules. Explain.

  • Comment number 267.

    All this user's posts have been removed.Why?

  • rate this
    -3

    Comment number 266.

    Typical, the Labour opposition having a dig rather than trying to negate any negative news! in a threat to our AAA credit rating!

    Surely as a Nation we need to keep a stiff upper lip and get on it!

    Ed Balls said the Moody's statement was a warning to the UK.
    "today is the first evidence that even the ratings agencies are waking up to the fact George Osborne's plan is not working,"

  • rate this
    0

    Comment number 265.

    "France and Austria have also been warned and Italy, Spain and Portugal's ratings have been lowered."

    ...but the BBC only goes on about the UK, serving their pro-EU, anti-UK agenda.

    Aren't those countries' ratings *already* lower than ours? Isn't it a bigger story that Italy & Spain have *actually* been downgraded - approaching "Junk" status?

  • Comment number 264.

    This comment was removed because the moderators found it broke the house rules. Explain.

  • rate this
    +22

    Comment number 263.

    My solution to the agency debacle. The U.S. government, along with the SEC, should make a law where the U.S. rating agencies are not allowed to grade sovereign debt. What do the analysts do in these banks and investment houses anyway, are they redundant? The U.S. government has sat there and watched these agencies almost bring down Europe. Are the U.S. government complicit in this?

  • rate this
    +15

    Comment number 262.

    Moody's? Weren't they the corrupt jokers who said the sub-prime bonds were AAA? Maybe Mervin King should slip them a few quid and they'll go away.

  • rate this
    +8

    Comment number 261.

    I agree with a lot of comments on here that we shouldn't be relying on Moodys' so called credit rating, esp when they helped start this mess with rating sub prime mortgages, however we cannot keep using QE as a method to hide from our debts, its only covering up the issue and one day down the line we will be worse off once it all comes to light and actually have to face the music.

  • rate this
    -1

    Comment number 260.

    As for rating agencies, their methods and procedures are clearly outdated, as this crisis has shown, but they are just trying to do their job. They are not out to get anyone or playing kingmaker. They have nothing to gain from it. They live off their credibility, which surprisingly they still have.

  • rate this
    -2

    Comment number 259.

    SO SO SO right!!! listen to this man/lady!!!!

    JKdeB_

    Those blaming the Government don't understand...... Without their actions to date we would have lost the AAA status by now .... And be heading the way of Spain et al.

    Yes we need growth but the previous Government spent so much there is little left to stimulate the economy and too much debt.

 

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